Explanation

Under the revaluation model:

1. Initial purchase cost: €20 million
2. After first revaluation: Carrying amount = €18 million (a decrease of €2 million from purchase cost)
   • This €2 million decrease would typically be recognized as an impairment loss in profit or loss (not revaluation surplus)
3. After second revaluation: Carrying amount = €23 million

Calculation of revaluation surplus increase from second revaluation:

• Carrying amount before second revaluation = €18 million
• Carrying amount after second revaluation = €23 million
• Increase in value = €23 million - €18 million = €5 million

This €5 million increase represents the revaluation surplus that would be recognized in other comprehensive income and accumulated in equity under the revaluation surplus account.

Why not €2 million or €3 million?

• €2 million would be the recovery of the previous impairment loss (€18 million to €20 million), but the asset is now valued at €23 million, which is €3 million above the original cost.
• €3 million would be the amount above original cost (€23 million - €20 million), but the question asks for the increase from the second revaluation specifically, which is the full €5 million increase from the carrying amount before the revaluation (€18 million) to the new carrying amount (€23 million).

Key accounting principle: Under IAS 16 Property, Plant and Equipment, when an asset's carrying amount is increased as a result of a revaluation, the increase is recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. The increase is measured from the carrying amount immediately before the revaluation.